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American Economic Review: Vol. 94 No. 3 (June 2004)

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Referrals

Article Citation

Garicano, Luis, and Tano Santos. 2004. "Referrals." The American Economic Review, 94(3): 499-525.

DOI: 10.1257/0002828041464506

Abstract

This paper studies the matching of opportunities with talent when costly diagnosis confers an informational advantage to the agent undertaking it. When this agent is underqualified, adverse selection prevents efficient referrals through fixed-price contracts. Spot-market contracts that rely on income sharing can match opportunities with talent but induce a team-production problem which, if severe enough, can prevent the referral of valuable opportunities. Partnership contracts, in which agents agree in advance to the allocation of opportunities and of the revenues they generate, support referrals where the market cannot, but often at the expense of distortions on those opportunities that are not referred.

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Authors

Garicano, Luis
Santos, Tano


American Economic Review



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